Merkel Takes On Europe

By Terence Roth

Reuters

Angela Merkel makes a point in her budget speech

Angela Merkel in her budget speech Wednesday laid out the euro-zone divisions that bother Berlin the most. The message will play best at home, where draconian budget cuts, timing of tax cuts and a gaffe-prone junior coalition partner has whittled away her majority in opinion polls.

If it plays well in Pforzheim, it isn’t what other governments looking for consensus in the discordant policy mess that is early post-recession Europe want to hear.

Greece, which has seen Germany as the chief opponent to imminent financial bailout package, came away badly. Overly-hasty financial bailout would be “rash” and likely weaken the euro in the longer term, Merkel determined. Greek’s salvation is in its own hands. And, yes, she agrees with her finance minister that a remodeled euro-zone infrastructure whould allow any country (like Greece) habitually violating the rules to be ejected from the euro club. [Read our coverage here.]

France was next. Ms. Merkel rounded on French Finance Minster Christine Lagarde and her assertion that Germany was selfishly promoting its export industry at the expense of its euro-zone neighbors. Any proposal to shift around demand sourcing in Germany was “the wrong answer” to Europe’s frail economic recovery.

Gordon Brown’s protection of the London financial industry from new Franco-German initiatives to crack down on hedge funds and and credit derivatives was equally deplored. Merkel said of Brown:

“His onetime tax on bonuses made half as much sense as it would if Great Britain would agree to the hedge-fund regulations.”

It’s been a tough six months for the German chancellor since reshuffling her cabinet after the October election, breaking with the center-left Social Democrats to form a new majority with the more business-friendly Free Democtrats. Germany is now the only euro zone country to have written new debt caps into law, forcing harsh spending cuts even as Merkel has to borrow a postwar record EUR80 billion to keep the government running.

Given the political stakes at home, Merkel isn’t shying from putting Greece in the balance, presumably to placate resentful voters in her own country who have their own bills to pay. Popular calls for a crack down on financial markets and protecting German export jobs fall easily into line.

This is no longer about Greece. This is a political crisis of the EU. The EU is suffering total political paralysis in terms of its ability to deal with vital issues. Exactly the kind of issues that were predicted when economic initiatives such as the Euro took precedence to actual further political integration. There is a currency with no mechanisms to protect it! What other currency in the world is in this position?
The core of Europe has no leadership as Germany and France that would normally provide it are currently run by individuals, way below par for the circumstances. The German delusions of power and safety will collapse along side the finances of the rest of the Eurozone and potentially the EU as we know it. It would be interesting to see what trade surpluses Germany will run without the protectionism of the EU and the open markets it gets through it. The German government behaves like the person on top of the smoking pipe of the sinking Titanic that is ignoring those that are on the deck. Unfortunately for them the whole boat seems to be going down!
Without political leadership in Europe there is absolutely no hope of progress on any front.

3:35 pm March 17, 2010

An T wrote:

This is no longer about Greece. This is a political crisis of the EU. The EU is suffering total political paralysis in terms of its ability to deal with vital issues. Exactly the kind of issues that were predicted when economic initiatives such as the Euro took precedence to actual further political integration. There is a currency with no mechanisms to protect it! What other currency in the world is in this position?
The core of Europe has no leadership as Germany and France that would normally provide it are currently run by individuals, way below par for the circumstances. The German delusions of power and safety will collapse along side the finances of the rest of the Eurozone and potentially the EU as we know it. It would be interesting to see what trade surpluses Germany will run without the protectionism of the EU and the open markets it gets through it. The German government behaves like the person on top of the smoking pipe of the sinking Titanic that is ignoring those that are on the deck. Unfortunately for them the whole boat seems to be going down!
Without political leadership in Europe there is absolutely no hope of progress on any front.

2:16 pm March 17, 2010

Fritz wrote:

The SPD is considered to be center-LEFT, not right. They are currently considering ditching the "center" part.

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